A prescribed audit report is a mandatory requirement for proponents who wish to apply for Australian carbon credit units. An audit report provides buyers of Australian carbon credit units with confidence that these credits represent genuine abatement.
Who needs to provide an audit report?
All projects require a prescribed audit report for the first offsets reporting period.
Projects may be exempt from ongoing audit obligations if they are eligible non-Kyoto projects and are likely to generate less than an average of 2 500 tonnes of carbon dioxide or equivalent abatement annually.
When does a project need to be audited?
A project must be audited at the end of a reporting period and before applying for a ‘certificate of entitlement’. Project proponents must submit a prescribed audit report together with an offsets report within three months of the reporting period concluding.
Applicants can choose when it is most cost effective to report, provided that their first offsets report (and accompanying prescribed audit report) is submitted to the Clean Energy Regulator between 12 months and five years from the date their project was declared eligible and the project is covered by a crediting period.
Project proponents are encouraged to engage their auditor during project development. This will assist to ensure the project is auditable and allow the auditor to plan activities throughout the reporting period as well as post reporting period.
For example, if your project was declared eligible from 1 July 2010 you could elect to apply for a certificate of entitlement and submit your first offsets report covering the period 1 July 2010 to 31 December 2012. Early auditor engagement will help reduce the audit activity required from 1 January 2013 and when the offsets reports must be submitted to the Clean Energy Regulator on or before 30 March 2013.
What will be the scope of the audit?
An audit of an eligible offsets project will provide an opinion on whether the project was carried out in accordance with:
Who can conduct an audit?
The Carbon Credits (Carbon Farming Initiative) Regulations 2011 specify that eligible offsets projects audits must be undertaken by a Category 2 or 3 greenhouse and energy auditor who is registered under the National Greenhouse and Energy Reporting Regulations 2008.
The National Greenhouse and Energy Reporting Regulations include categories for suitably qualified people to register as Carbon Farming Initiative (CFI) auditors. This means that people with experience in verifying and auditing land based offsets projects may register as a Category 1 - CFI technical greenhouse and energy auditor.
Category 2 or 3 registered greenhouse and energy auditors may choose to engage a Category 1 (CFI technical) auditor to assist with technical matters as part of a prescribed audit. Project proponents may choose to engage CFI technical auditors to assist with project development, verification of project implementation matters, or other voluntary audit activities.
The requirements for registration as a Category 1 (CFI technical) auditor are set out in the National Greenhouse Energy Reporting (Auditor Registration) Instrument 2012. Examples of knowledge and experience include:
- Degree or equivalent conferred by an appropriate institution
- Knowledge of relevant National Greenhouse and Energy Reporting and Carbon Farming Initiative legislation. Applicants for registration provide a statement provided setting out details of their knowledge of the legislation and how this was obtained
- Technical knowledge —in broad terms, the applicant may obtain technical training and experience by participating in at least one of four specified activities for at least 150 hours. The specified activities are:
- participating in a technical working group for the development of a methodology determination,
- participating in an expert review of a methodology determination proposal,
- participating in a technical project that estimates abatement under a non-CFI offsets scheme, or
- participating in training.
- Knowledge of auditing —demonstrated with evidence of audit training, qualifications and experience.
As outlined in the National Greenhouse and Energy Reporting Regulations, the Category 2 or Category 3 auditor undertaking the role of team leader for a Carbon Farming Initiative offsets project report must not conduct more than 5 consecutive audits in relation to an audited body. Applications for an exemption to this condition will be considered by the Clean Energy Regulator. Auditors can send applications for exemption to: firstname.lastname@example.org.
For further information on greenhouse and energy auditors, including information about how to apply to register as an auditor, refer to the Auditors information under National Greenhouse and Energy Reporting (NGER).
What is the project proponent’s responsibility in preparing the audit report?
The project proponent is responsible for the engagement of auditors and costs associated with the preparation of a prescribed audit report. The proponent will also be required to provide access to information, documents or project sites. All access should be negotiated and agreed upon prior to being provided.
Engaging an auditor at the beginning of a project will assist to ensure that the necessary records are collected and retained. Good record keeping will expedite the audit process and assist the auditor to substantiate project compliance with the relevant requirements.
At the completion of the audit, the project proponent may also be required to sign a Management Representation Letter or equivalent. This will confirm that the auditor has been given access to all information, everyone involved in the audit has been truthful and forthcoming and may also include agreement with the audit findings.
How to engage an auditor?
Project proponents wishing to engage an auditor should use the details provided in the Register of Greenhouse and Energy Auditors.
Prior to commencing the audit, the proposed audit team leader must prepare the terms of audit engagement and have them approved by the project proponent. These terms must include the:
- objective of the audit
- matter being audited
- kind of audit engagement being carried out
- name and address of the audited body
- provisions in the Carbon Farming and NGER legislation that relate to the matter being audited
- period of time to be covered by the audit, and
- period of time when the audit activity is to take place.
Once the engagement terms are approved, the first activity for the audit team leader should be to prepare an audit engagement plan. The audit team leader will include a risk assessment to determine the timing and extent of evidence gathering necessary to complete the audit. The engagement plan should be developed in consultation with the project proponent and all parties involved should be comfortable with planned activities prior to the audit progressing.
What will an auditor do when they are preparing an audit report?
The auditor will undertake testing and sampling to gather sufficient evidence to support the audit conclusion.
The auditor may:
- assess data and information about the project
- need access to project sites
- interview key personnel involved in the project
- test proponents systems and processes, or
- undertake other activities as agreed in the audit engagement plan.
In the process of providing assurance about the project, an auditor may consider and report on many aspects of your project, including:
- the activity, technology or management practice and the circumstances or conditions under which the project was implemented
- steps taken by the proponent to accurately set the greenhouse gas assessment baseline and estimate, monitor and report abatement for the project
- assurance that, where the estimation is based on a unit of land, the project areas were stratified accurately, or
- any relevant information and documentation required by the applicable methodology.
Specific requirements for audit reports may also be prescribed in the methodology determination that applies to the project.
All audit reports are required to be peer reviewed.
What should an audit report look like?
The prescribed audit report must contain 3 parts, as described in Division 3.4 of the National Greenhouse and Energy Reporting (Audit) Determination. The three parts a prescribed audit report will be required to contain are:
1. Covering Sheet
The Cover Sheet will contain basic information about the audit such as the name of the auditing body, the date the audit was signed, the name and location of the project being audited, the name of the project proponent and the time period the audit is assessing.
2. Part A
Part A of the audit report presents the auditor’s opinion, and contains the conclusions, limitations and summary of work performed.
3. Part B
Part B of the audit report provides more detailed information about the auditor’s activities and findings against key risks. This section provides valuable evidence of the audit findings in Part A.
Part B may contain:
- details of the items or issues related to the matter audited that required particular attention during the audit.
- details of aspects of the matter audited that particularly impacted on the carrying out of the audit.
- details of any matter, related to the matter being audited, that the audit team leader has found during the carrying out of the assurance engagement that he or she believes amount to a contravention of the project declaration, the Carbon Credits (Carbon Farming Initiative) Act 2011 or the applicable methodology determination.
- any matter, related to the matter audited, that the audit team leader believes should be mentioned in the assurance engagement report.
What opinions may an auditor provide?
Under the National Greenhouse and Energy Reporting (Audit) Determination, four different opinions may be provided on an assurance audit:
- Clean or Unqualified
- Unable to form an opinion.
To be eligible for Australian carbon credit units the prescribed audit report that you submit for a reporting period must provide either a reasonable assurance conclusion (clean) or a qualified reasonable assurance conclusion (qualified) for each of the matters audited.
Are there any other types of audits?
There are currently two other types of audits under the Carbon Farming Initiative.
Compliance audits: The Regulator may wish to conduct compliance audits where there are reasonable grounds to suspect that a project is not being conducted in line with the Carbon Credits (Carbon Farming Initiative) Act 2011. Written notice of intention to conduct an audit is issued with reasonable notice and an outline of what the audit will involve. Project proponents are responsible for engaging an auditor for a compliance audit. Reimbursement of reasonable costs may be given where no evidence of non-compliance is found.
Other audits: The Regulator may wish to undertake other audits as part of routine monitoring. In this case, written notice of intention to conduct an audit is issued with reasonable notice and an outline of what the audit will involve. For these audits, the Clean Energy Regulator is responsible for the engagement of an auditor and any associated cost.
This information provides a guide only, and is not intended to be a substitute for reading the legislation referred to in this document or obtaining legal or other professional advice about how the requirements in the legislation apply to your particular circumstances.